Wondering if a visit to a financial planner will be beneficial for you? Will the fees s/he charges be worth the guidance you'll receive? Part 3 of my interview with Joel Kantor, a Certified Financial Planner in Tulsa, Oklahoma, will provide some guidelines.
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TMF Venus: Now for the fun part. How do financial planners make their money?
Joel Kantor: There are three types of compensation: being paid a commission (commission-based); charging a fee (fee-only); and some combination of the two (fee-based). At my company, we don't receive commissions when our clients invest in mutual funds or purchase insurance policies. We're fee-only. Just follow the trail of compensation to understand where your advice is coming from.
TMF Venus: Can someone get hourly financial planning and tax advice to get a big picture?
Joel Kantor: Planning can be done hourly, too. It always takes more time than clients think, though. Just the meetings with clients take hours!
TMF Venus: Can you help make someone's financial life better?
Joel Kantor: We undoubtedly add value to a person's financial life, although it can't always be measured in dollars and cents. During the first meeting, it's imperative to ascertain what can be expected. When you leave my office, you'll know that your family won't worry if something unforeseen happens to you.
TMF Venus: How do I know if the cost of financial planning is worth it for me?
Joel Kantor: Most of our clients are high-net-worth clients, with estates upwards of $1,000,000.
If you're young (25-35) and your income is large enough to comfortably afford us, it will be worth the investment. If not, you simply need to adjust your lifestyle to include things like maximizing your 401(k) and other personal savings. Within a couple of years, you'll be able to justify the price of planning and it won't be too late.
If you're 35-50 and your income is large enough to start planning, you either can afford us or you should find a way to afford us. If you feel you can't, it's normally due to a belief that your world is financially crashing in. The home may be too much; the college costs are adding up; the kids demand cars, clothes, or big weddings. Unfortunately, if you're financially drained by more than the education costs, it's because you have 60-inch TVs, 1000 square feet too much home, or a car per person living there. In this case, there's very little I can do. You may need credit counseling -- a free service here in my town.
Then there's the over-50 group. Frequently, this group walks in the door with a financial problem or because something drastic has occurred, like the death of the last parent. They see an issue that needs fixing and don't know how to solve this dilemma. Examples include being offered early retirement with the need to know if they can afford it, severance issues, tax planning, or cash flow review. A death of the last parent brings out the probate monster, and they want to make sure their kids never go through that.
TMF Venus: What information should one bring along to get maximum value for time spent with the planner?
Joel Kantor: Initially, bring anything with a dollar sign next to it. Software such as Quicken helps people organize their lives. Keep it simple though. I've seen reports with more than 100 rows of expense classes -- 25-30 should cover them all, even the sub classes.
TMF Venus: What's the deal with brokers?
Joel Kantor: Brokers have clients so fooled. We recently had an opportunity to be interviewed by a prospective client currently with Merrill Lynch. She has about $700,000 in the Merrill rap-fee accounts. The fee is 2.8%. Some of that money was invested in bonds. For what service, I wondered? I think it should be called a rip-fee, as in rip-off. I quickly took out my calculator and explained that she was paying the broker $19,600 a year to watch over her investments.
I told the prospective client that the investment management fee savings she'd receive with us would more than pay for her comprehensive plan and leave her money left over. I've not heard back, but I feel pretty certain that either the Merrill broker is lowering his fees or she's headed our way.
TMF Venus: Do you worry about competition from insurers or brokerage houses?
Joel Kantor: The insurance and brokerage firms claim to provide financial planning, but you'd better fit into one of their five or six molds. They continue to charge 2% or more to manage assets. As long as we can offer investment management and provide clients assistance with questions about their income tax, short- and long-term disability needs, decisions about beneficiary designation, life insurance, estate planning, loan interest reduction, and more -- and do it for less than what they pay now for investment management alone -- my door will continue to swing open. As long as they continue to offer the cookie-cutter approach, we'll continue to distinguish our clients.
TMF Venus: Any advice for financial-planning hopefuls?
Joel Kantor: The best advice I can give a CFP wannabe is to learn the stuff. Don't try to simply pass the tests. In the end, you'll need to learn the other 30% anyway.
TMF Venus: What are the positive and negative aspects of working in the business?
Joel Kantor: Hmmmm, that's a tough one. One positive is that good planning can make all the difference to an individual's or family's life. It's a beautiful thing to work in a concerted effort with other professionals to benefit someone else. The negatives are the same as it is for other businesses -- one bad CFP and the world sees us all in a negative light.
TMF Venus: How does a person locate a financial planner in his/her area?
Joel Kantor: I recommend www.feeonly.org or www.napfa.org. Both of these sites will get them to the National Association of Personal Financial Advisors. From there, they can locate people in their neighborhood. Most financial planners give the first consultation free of charge. Individuals can then ascertain what the fee structure of the planner is, and decide whether they're comfortable sharing the intimate details of their financial life with that person.
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Thanks to Joel for spending his valuable time answering these questions. It's important to remember, however, that we have limited space, and much of the material covered in this interview requires more details specific to your circumstances. Each one of you is unique, and may not fit the facts as we've discussed them.
Related Links:
Finding a Financial Planner, Motley Fool Special Feature, 7/28/99
Finding a Good Financial Planner, Foolish Four Portfolio, 7/19/99
Finding an Advisor, II, Foolish Four Portfolio, 7/27/99
Investment Advisers: What You Need to Know Before Choosing One, SEC website
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